JLL: Tenants Look Toward North San Jose for Space

BY THE NUMBERS

The continued expansion of the tech sector has yet to ease. Robust hiring conditions in Silicon Valley have steadily pushed unemployment even closer to pre-recession levels and tech firms are aggressively scouting talent from all around Bay Area and beyond. Meanwhile, venture capital flows are creating a record number of billion-dollar startups, or “unicorns”. This is fueling the ongoing demand for office space and red-hot market conditions are now spreading into tertiary submarkets.

Leasing activity broke the slight lull from last quarter with the signing of several large deals, including Ericsson’s 400,000-square-foot transaction in Santa Clara at Irvine Company’s Santa Clara Square development. Despite some analyst’s warnings that current conditions are drawing eerie parallels to the dot-com boom, landlords have yet to show anything but optimism now that North San Jose is becoming the focus of several tenant requirements. Orchard Parkway, otherwise known as “renovation row” for the high volume of recently rehabilitated space, recently landed several deals and it is suggested that more tech firms are close to completing leases in the area.

Investor appetites for high-image assets remain healthy. Santa Clara has seen increased interest now that the 49ers stadium is complete, while potential repositioning plays in North San Jose are expected to generate more interest given the string of leasing deals on the finish line there.

Leasing activity

  • In the largest lease to sign this year, Ericsson preleased approximately 400,000 square feet of under construction Class A office in Santa Clara on Augustine Drive. Ericsson will be consolidating from their location in North San Jose.
  • Verizon leased 135,000 square feet of rehabilitated space on Trimble Road in North San Jose as they look to build their digital media/TV division in the Valley.
  • Protein Simple leased 97,957 square feet of renovated space at 3001 Orchard Parkway in North San Jose and will relocate from Santa Clara by the end of Q4 2014.

Tenants in the market

  • Complete Genomics is looking for space outside of their Mountain View Campus and is in the market for at least 150,000 square feet in the Golden Triangle region of the Valley.
  • Mobile Iron continues to survey potential relocation options greater than 100,000 square feet. They have been leasing smaller spaces near their office in Downtown Mountain View and recently made their public debut on the NASDAQ.

Sales activity

  • Continuing their aggressive expansion, Google acquired a 397,510 square-foot campus on 1101 W Maude Avenue in Sunnyvale from RREEF for $250.0 million, or $629 per square foot. The campus is currently occupied by Synopsis, who will vacate once construction of their new headquarters on Middlefield is complete.
  • Prudential acquired a two-building, 584,809 square-foot office complex in separate transactions. 3975 Freedom Circle sold for $148.7M or $527 per square foot from Blackstone while 3985 Freedom Circle sold for $126.6M or $447 per square foot from Shorenstein.

Construction activity

  • 1255 Pear Avenue in Mountain View finally broke ground. The 127,000 square-foot Class A building was preleased by Google and is adjacent to their main campus in the Shoreline area.
  • Spear Street has begun construction of the last building at their Stadium Tech Center campus. The 221,173 square-foot Class A office tower on Great America Parkway is expected to complete by Q3 2015 and is blocks away from the new 49ers stadium.
  • The demand for downtown micro-urban space has yet to cool. There is approximately 310,000 square feet of new construction under way in Downtown Palo Alto and Downtown Mountain View combined, 40.0 percent of which is already preleased.

FULL REPORT

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